Next-Generation Technology For Financial Investigators

Criminals are riding the wave of technology just like the rest of us. "Joe and Judy Smith" are using computers, cell phones, and PDAs to stay more connected with family members, conduct legitimate business, and share media, but criminals are using them to commit and subsequently hide increasingly sophisticated white-collar crimes. For example, the advent of the "convenient" technology of online banking actually now enables criminals to eliminate human interaction in transferring millions of dollars around the world. All that's required is the initial opening of the account; from there, most anything can be done virtually. 

 

At a December 2007 Money Laundering and Terrorist Financing Conference in New York, financial industry regulators detailed the ongoing problems that banks and brokerage firms continue to struggle with in their efforts to properly identify account owners. Often, financial institutions can't determine if a name (or variation of a name) on checking, savings, money market, mortgage, and private bank accounts is actually that of the same person on each of those accounts. With such a large volume of customers, account types, and technology platforms, banks face significant challenges to truly "know their customers" -- a problem that criminals definitely haven't overlooked. 

 

Though some are using this virtual environment to "anonymously" launder illicit proceeds from their criminal activities, the transactions still leave footprints. But investigators find those footprints by searching through mounting volumes of data in a plethora of formats including electronic, image, and paper records. 

 

The upside to this trend of ever-increasing data sets is that institutions are offering more information in account statements and detail documents that help identify source and destination entities of transactions. Some examples include customer-controlled Automated Clearing House (an electronic network for financial transactions), wire transfers, and point-of-sale transactions from debit/check cards and brokerage accounts. 

 

But how do you assemble it all? These massive data sets can't be manually processed. Entering data by hand into Excel worksheets or Access databases limits fraud examinations to sampling techniques. But new technology is finally helping investigators search, locate, image, archive, and index large volumes of documentation. They can now find that one "needle in the haystack" e-mail that could impeach the testimony of a star witness and indicate knowledge, intent, or elements of a conspiracy. The Financial Investigation System (FIS) from Actionable Intelligence Technologies Inc. is one tool that investigators can use to test 100 percent of a data set. (I have no relationship with AIT and haven't been influenced in any way to review its FIS.) 

 

FIS employs AIT's proprietary "intelligent parsing" techniques and technology to allow all electronic data formats (such as Excel, Quickbooks, Access, and proprietary formats from financial institutions), electronic images (.pdf, .jpg, .tiff, etc.), and hard copies of financial documents (bank, brokerage, credit card statements, invoice summaries, job cost reports, checks, deposit tickets, and other detail documents) to be automatically populated into an analytical software tool designed for financial investigations. Investigators can now get down to the "nitty gritty" and more thoroughly test and prove each investigative theory in real time. This software also provides a full range of automated investigative analysis functions that identify source and destination information; demonstrate patterns of activity; and allow comprehensive financial analysis, reporting, and flow of funds charting functions. 

 

This composite AIT case study helps explain the system. A criminal entity had more than 30 businesses with up to 20 joint "owners" who were authorized to sign on each account, which was a red flag itself. The smuggling ring brought illegal aliens into the United States and purchased properties to house them, which eliminated the risk that landlords would report them to authorities and trigger an investigation by the Immigration and Naturalization Service. The illegal aliens paid rent for these crowded properties. The property owners maxed-out equity lines against each property and then laundered those funds through escrow companies and law firms by churning transactions via the dozens of owners listed on each account. After the funds were clean, the property owners withdrew large amounts for personal use and repeated the cycle by buying more properties with the remaining monies. 

 

The original crime was illegal immigrant smuggling, but the ring perpetrated a full range of federal, state, and local criminal and civil violations ranging from tax evasion and money laundering to falsifying government documents for loans and articles of incorporation, to various racketeering and organized crime violations. 

 

The Figure 1 chart illustrates the extremely complex methods the ring used to launder a massive amount of money via churning of excessive real estate transactions. Each circle represents a unique account and the logarithmic lines between accounts indicate the amount of transferred money.

 

Figure 1 

A scheme like this can easily produce tens of thousands, or more, of financial transactions. Sorting, identifying, and making sense of the co-conspirators, associated accounts, and assets through source and destination information for owners, signers, signatories, endorsers, originators, and beneficiaries using conventional data input and analysis techniques is beyond the scope of most conventional methodologies and investigative tools. 

 

In a case like this, about 85 percent of investigative time is spent on costly manual data input versus 15 percent on case management, analysis, and report preparation. However, FIS performs the data input functions automatically via proprietary intelligent parsing techniques, which subsequently identify source and destination entities from the raw data and allow for rapid analysis. A much clearer picture begins to emerge (Figure 2) after the data is inputted and the investigator takes steps to sort and focus on accounts of interest. This allows mid- and senior-level staff to focus on high-value "consulting-grade" tasks, which produce quicker turnarounds. Also, comprehensive data analysis yields more criminal activities, co-conspirators, and fraudulent transactions plus greater assets recovery. 

 

Figure 2 

The investigator has now filtered out insignificant accounts, transactions, organizations, and persons to show transactional behavior that a client, grand jury, or court can easily understand. This software also brings speed, efficiency, and clarity to smaller cases. For example, the typical loan payback scheme relies on three basic elements: (1) the ability to obtain legitimate funds (in Figure 3, see the loan-advance transactions represented in pink) from an institution through actual or perceived high net worth, (2) the transfer of business funds to individuals and business represented as loan repayments (see transactions represented in blue), and (3) the transfer of illicit funds back into the originating institution (see transactions represented in yellow) and subsequent repayment of the loans or line- of-credit advances (see transactions represented in red). 

Figure 3 

In this scenario, AIT's technology allowed the investigators to quickly and efficiently process, reconcile, and graphically represent specifics within the scheme. 

 

When you do the math, implementing a system like FIS isn't expensive especially when you consider time savings. However, some customers are simply paying AIT for individual projects that it processes. Investigators can drop-ship boxes of hard copies or upload records via a secure online format. The AIT staff quickly processes the data. Investigators can instantly review files remotely or export data in general .csv formats for use in other applications. 

 

The nature and scope of financial investigations is time-consuming and expensive. Eliminating manual entry from the process saves both time and money, and allows firms to shorten turnaround times, increase seizures, take on more cases, and increase success on each engagement. 

 

Richard B. Lanza, CFE, CPA/CITP, PMP, president of Cash Recovery Partners LLC, helps companies identify their hidden financial assets, mostly by using technology and referring them to specialists. He has two free Web sites: www.findmillions.net, and www.auditsoftware.net.    

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